Political M&A market makes for rocky days ahead

  • Markets
  • Saturday, 26 Sep 2020

In the world of capital markets, when there is ambiguity and lack of clarity, nobody puts money in with a long-term investment view.

THE economy, stock market and corporate earnings, with the exception of glove companies, lack vibrancy.

But rocky days are ahead for the Malaysian corporate scene with a fiery mix of the Sabah state elections, upheavals, and “political mergers and acquisitions” (M&A).

Datuk Seri Anwar Ibrahim’s statement that he has the numbers to form a new government would not have had any impact had it been a lone voice in isolation.

However, statements by Umno leaders like Datuk Seri Ahmad Zahid Hamidi that some MPs from his party would throw their support behind Anwar if he gets the green light to form a new government lends credence to the latter’s statement.

One Umno MP has already said they would not pull out of the government led by the Perikatan Nasional coalition but may not support any bills proposed by the government in Parliament.

This can be seen as a veiled threat to the government led by Tan Sri Muhyiddin Yassin that the next Dewan Rakyat sitting may not be so smooth going. Or it can be used to force him to call a snap General Election.

These are distractions we cannot afford. The next sitting in November is scheduled to deliberate on Budget 2021, which is probably the most important piece of legislation to keep the economy alive. Due to the Covid-19 pandemic, the economy this year is likely to contract by up to 5.5%, which is the worst performance since the 1998 Asian currency crisis. Malaysia is not alone as most countries are in recession due to the pandemic.

The solution to lift the economy is to embark on infrastructure spending. From the United States to Japan, governments have loosened their purse strings to rejuvenate the economy. In the US, which will hold its presidential election in five weeks, the stimulus package is the focus of a debate between the Democrats and Republicans.

Malaysia’s budget deficit could be as high as 6% this year while the government debt to gross domestic product (GDP) ratio is way above the acceptable level of 55%. But governments bursting their acceptable macroeconomic limits are “acceptable” given the global economy is going into a recession.

The stability of the ringgit, which would normally have been volatile if the macroeconomic numbers are weak, is helped by the fact that foreign money in Malaysia has come off its previous higher levels. According to Bank Negara data, non-resident holdings of Malaysian bonds are 22.2% as of June this year. It was 29.8% five years ago.

Foreign investors are net sellers in the equities market and have taken out a total of RM21.4bil from the market so far this year, based on data by MIDF Research weekly money flow report.

Muhyiddin has so far brushed aside Anwar’s claim of having the majority support in Parliament. He continues with his RM305bil packages to stimulate the economy.

Man on the street

The plan mainly covers areas that affect the man on the street. The thrust of the plan is to put money into the hands of the people directly or through some form of relief such as a moratorium on repayment of their loans.

But the government will need to unveil a plan for the longer term to keep the economy going for the next year or so. Many are expecting the budget to announce infrastructure projects, introduce new taxes and incentives for strategic business.

The stage is set for the government to spend more money. Towards this end, a bill has already been passed to allow for the federal government debt to GDP ratio to move up to 60% from 55% until 2022.

According to research reports, this increased ratio will allow the government to borrow an additional RM75bil that can be spent on projects to boost the economy. But recent developments have raised questions on whether Muhyiddin can even hold on until the next parliament session.

When the session starts, will Muhyiddin’s government get the mandate to see through Budget 2021?

A senior investment banker says there is so much ambiguity and lack of finality that nobody can say with any certainty when the politicking will end.

Even a simple question as to who stands to benefit most from the outcome of the Sabah elections generates a myriad of answers.

If Barisan and its partners, including Bersatu, win, does this make Perikatan stronger? If Warisan retains the government, would it make Perikatan any weaker at the federal level?

In the world of capital markets, when there is ambiguity and lack of clarity, nobody puts money in with a long-term investment view.

Investors generally trade daily in the spot and derivatives market for quick returns. The more savvy investor takes positions in the options market where the risk is high but entry cost is low. The M&A market among companies becomes active only once in a while but it creates an impact that can last for months.

Similarities can be drawn in the Malaysian political arena today.

The “spot and derivatives” activity among politicians are going on as they go about their daily duties. The more seasoned politicians or political parties are coy and do not make a firm stand on who they support. The most active segment is the political M&A market that looks set to continue for a few more months at least.

M. Shanmugam is former specialist editor of The Star. The views expressed here are the writer’s own.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 18
Cxense type: free
User access status: 3


Did you find this article insightful?


100% readers found this article insightful

Across the site